The Doha Round of WTO trade policy negotiations will soon celebrate its twelfth birthday. Optimists will find little to cheer about the round, and the need for further negotiations has become increasingly urgent. The September 8 print edition of the Economist pointed out that increased trade and increased economic growth go hand in hand. The world needs more economic growth; thus it needs further trade negotiations to increase trade to aid in that economic growth.
Global merchandise trade suffered a 12 percent decline during the heart of the recession in 2009 and had a strong recovery of 13.8 percent in 2010. Trade increased another 5.0 percent in 2011, but below the 1991-2011 average growth rate of 5.4 percent. Trade growth is expected to slip to 3.7 percent in 2012.
WTO Director General Pascal Lamy said at the late-July WTO General Council meeting that, “we need to change gears at various levels so as to ensure that we use our time in the most efficient manner possible.” The Economist position is that Lamy should get a new bicycle by closing the Doha Round and including the best provisions of that round in a new Global Recovery Round. Along with that change the ‘single undertaking’ rule of the Doha Round and previous GATT rounds that ‘nothing is agreed until everything is agreed’ should be scrapped. That worked in 1947 with 23 members, but does not now with 157 members.
Talks would be broken into smaller segments and allowed to advance at varying speeds based on the negotiators interest in the issues. Negotiations would be open and countries would choose which negotiations to participate in based on their interests, but the ‘most-favored nation’ principle would still apply. Any tariff agreement made by a small group would apply to all WTO members, even if they did not reciprocate. If a country desired to protect an industry that action would not prevent major producers and users from other countries lowering tariffs to gain the advantages of trade and extend those benefits to others.
The writers of the Economist editorial would focus first on manufacturing and services because they account, respectively, for 55 percent and 20 percent of trade. While tariffs on manufactured products have been lowered, some countries maintain relatively high tariffs, others have low applied tariffs, but high bound tariffs that could be increased, and almost all have some manufactured items with high tariffs. Supply chains integrated across national borders would gain by allowing countries to specialize in certain components. Services have much work that needs to be done to open markets.
Agriculture would be left to advance at a slower pace. That would be a suboptimal outcome for agriculture, but as the Economist noted “an industry that makes up only 7% of world trade cannot hold everything else hostage.” U.S. agriculture has supported the ‘single undertaking’ in negotiations because of concerns that they would be left out due to domestic policy pushbacks. Those were valid concerns, but the result has been no reforms in manufacturing trade that would improve economic growth and increase demand for food. Agricultural trade negotiators would be relieved of the need to address the high tariffs of countries like India and Japan that have stalled past agricultural talks.
The Economist suggested that when G20 finance ministers meet in Mexico City this November they ask the WTO’s Mr. Lamy to formally launch the Global Recovery Round. It would be finished by the time of the ninth WTO’s Ministerial Conference in Bali, Indonesia in December 2013. A year sounds like a short time to work out agreements, but after twelve years of talking there are few secrets on trade issues, except for the bottom line position countries will take. Working on issues by industry or a segment of an industry will remove the incentive to withhold the final offer until all offers from all the other industries are supposedly on the table.
Perspective on the timing issue is important. The Uruguay Round Agreement was completed in 1993 and came into force in January 1995. The world economy has changed radically since 1995. Agreements approved in December 2013 would likely come into force in January 2015; a full 20 years after the last agreement took effect. Bilateral and regional free trade agreements (FTA) have sustained the freer trade movement over the last 15 years and will continue to expand without a new WTO round. In January 2012 the WTO had received 511 notifications of regional free trade agreement (counting goods and services separately) and 319 were in force. A Global Recovery Round would incorporate into WTO rules what has been learned from FTAs.
The Economist editorial mentioned in passing that cutting red tape would boost trade. That is usually referred to as trade facilitation – the streamlining of paper work and time as products move though the exporting and importing process. It was part of the July 2004 work program adopted by the WTO General Council and has a negotiating group. The World Bank Doing Business report in 2010 found that exporting a standardized cargo of goods took 6 days in the U.S., Canada needed 7 days, Mexico 12 days, Brazil 13 days, China 21 days, South Africa 30 days and Russia 36 days. The cost of trade can be reduced and the process speeded up without harming the integrity of the process and often improving it. This work should be included in the Global Recovery Round to the benefit of all trade.
Director General Lamy has been tracking the imposition of new import restrictions since the current economic crisis began. Beginning in October 2008, he estimates that restrictions have been placed on 2.9 percent of world imports and 3.8 percent of imports by the G20 group of largest economies. He found a recent shift in trade distorting policies, “The more recent wave of trade restrictions seems no longer to be aimed at combating the temporary effects of the global crisis, but rather at trying to stimulate recovery through national industrial planning, which is an altogether longer-term affair.” Governments are pursuing policies of the past that reduce economic efficiencies and retard trade growth and economic growth.
It is time to put the Doha Round to rest and start a real round to offset the spreading protectionism that Mr. Lamy correctly identified. The Economist’s approach has been discussed before and is worth trying unless someone has other options. Time is critical and the Bali ministerial looks like a good target for completion.
Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology